With the mining boom credited with sustaining Australia’s economic prosperity, recent signs of demand softening are igniting concerns about its future. Eleanor Reader investigates how SAP plans to help mining companies navigate safely through the uncertainty.
Shifting social, economic and political trends are constantly changing the mining industry, dredging up new and old challenges alike. A renewed focus on cost control has gripped the industry and as rising demand looks to increase into the future, the lack of skilled labour becomes a greater concern. As a result, technology as an enabler is becoming more important to the industry than ever before.
Cost control
As costs increase and certain commodity prices soften, the focus of the mining industry has returned to cost control. Operational costs and project costs have taken centre stage as the industry seeks to implement the right systems and processes to gain stability and control of their businesses. In particular, the price shift in Australia’s two main commodities – iron ore and coal – has prompted a return to a more traditional method of cost control.
Tony Parvin, business manager – mining solutions for NTT DATA Business Solutions, says he finds the refocus on operational activities/costs and project costs to be a refreshing change.
“There’s a recognition that the production demand is softening and that has led business activity for some time. There’s a surprising amount of activity going on but I think that’s a function of the recognition that as times get tougher people need to have the right systems and processes in place,” he says.
SAP is responding to this cost control trend by providing solution to mining customers that allow them to put better process controls in place, ensuring there’s consistency across their processes so they can monitor costs and report on the efficiency of the operations, says SAP Australia and New Zealand’s industry principal for resources and mining, Peter Hodgins.
“The best way to control costs is to understand where the costs are and where the efficiencies are; that’s what ERP systems can do,” he says.
SAP’s three most recent acquisitions – SuccessFactors, Ariba and Syclo – address key processes for miners, according to Hodgins.
“SuccessFactors allows them to manage their HR or HCM processes, making sure they’re aware of staff and contractors’ performance, with a focus on recruiting and retaining a good workforce. Ariba allows them to better manage their procurement spend, and as a mobility solution, Syclo allows them to manage their maintenance spend in particular, so it is more efficient,” he says.
Demand continues to rise
As emerging markets continue to surge toward industrialisation, demand in China (Australia’s biggest export partner), India and even Africa is rising, and it looks like this will be the long-term trend for a while to come.
“There’s been a blip in demand but demand is still strong for most resources,” says Jarrod Bassan, senior consultant, CSC.
While the scale of growth and the speed of growth in demand for raw material has obviously slowed, Hodgins says it is still growing nonetheless.
“I think what we’ll see is a slight change in focus as China in particular has gone through their phase of construction, so steel, iron ore and coal in particular have been a big focus. The maturing of that market means we’re seeing different demand for different materials, such as aluminium, copper and other metals,” he says.
Parvin admits that there is still a lot of opportunity with projects, as smaller organisations are recognising that having the right systems and good business processes in place are the key to success in the sector.
“There’s a recognition that there’s a lot of business improvement activities that can be addressed going forth for the existing SAP install base, but also for smaller organisations who in a sense are still on the upswing, so they might be involved in projects directly or they’re providing services to other companies. There’s still a lot of activity particularly with construction,” he says.
Lack of skilled labour
Continued market growth means that the war for talent also continues, especially as new technology and operating models remain, says Accenture Australia mining lead, Nigel Court.
New capital expenditure in the Australian mining industry was expected to rise from AU$55.5 billion in 2010/2011 to $AU73.5 billion in 2011/2012. This places huge pressure on the lack of skilled labour in Australia as resources companies must ask how they can deliver future projects.
Bassan says this is a problem that is being felt in the sector all around the world, not just in Australia.
“There are people challenges, particularly in the developed world but also in developing countries. They have a slightly different spin on the problem, but they are also faced with the challenge of getting skilled resources to mine sites.”
Bassan attributes the skills shortage to the limited number of mining and engineering professionals graduating in previous decades and to the remote location of mine sites.
“There is a shortage of people who are willing to work in remote locations. And there are also a lot of disadvantages to fly in, fly out work. It obviously places a lot of pressure on individuals and their families, so for many people it’s not a sustainable way of working for a long period of time.”
SAP projects have already suffered as a result of the talent gap, according to Parvin.
“I think its always a challenge to find the right people at the right time, I think it has been particularly difficult over the last couple of years and I’d say that some projects have suffered as a consequence of that, where the right skills haven’t necessarily been available at the right time,” he says.
“I’m probably seeing a little bit of softening in that, in that some of the larger projects have been perhaps deferred or downsized a bit. But it continues to be a challenge to find the top people when you need them.”
SuccessFactors remains a priority for SAP as a tool to retain good talent, with Hodgins reiterating the focus of recruiting, training and maintaining workers.
Digital mining
Workforce shortages is just one of the trends driving a rise in technology in the mining and resources sector. Matthew Easlea, solution expert for mining, SAP, says digital mining is an emerging way for resources companies to work smarter instead of harder, by enabling mining operations with modern technology and optimised processes.
“The mining industry, jointly with SAP, is exploring how to take mature technologies out of other industries and apply them,” he says. “Examples are automation, which has been used in manufacturing industries for a long time. But unlike clean and controlled manufacturing environments, applying this technology in remote outdoor locations, exposed to the elements and unpredictability of the mining process, remains a major challenge.”
Autonomous operation, driverless vehicles and remote operation centres are just some of the technically orientated initiatives Parvin is seeing in the industry at the moment.
“That’s driven by the need to provide as safe a working environment as possible, along with potential cost reductions through more efficient operations,” he says.
This type of automation has been another area of focus for SAP.
“We are providing the layers in between technology platforms, so if you’ve got onboard systems on trucks and trains in a plant and equipment area, we’ve provided the integration layers between those systems and the commercial operations systems, that allow you to make informed decisions about where the equipment is going and the performance of that equipment,” Hodgins says.
The very complex iron-ore supply chains in Western Australia, the coal supply chains on the east coast of Australia and iron ore networks in South America require the next-level of technology to enable them to run, according to Bassan.
“As they now break this new ground, they recognise they need the technology to enable them to scale,” Bassan says. “Autonomous vehicles are heavily reliant on information technology to make them work. Operation centres bring workers away from remote mine sites and allow more of them to work in capital city environments. To do that requires systems and technology for communications and analytics, and enabling new business processes to make this work efficiently.”
Easlea says solutions from SAP, like the new release of MII v14, HANA, the 3D visualisation capability in Visual Enterprise and the ongoing work with major infrastructure players like Cisco ensures that they at the front of delivering the digital mining vision.
Decrease in easy to mine reserves
As the majority of easily accessible resource reserves have already been mined, these days, miners must often work harder for every tonne of ore produced.
“The majority of the large quality deposits in safe countries have already been claimed and are in development. Often the highest quality parts of these deposits have been extracted, so the grade of what is left is decreasing,” Easlea says. “Also, to expand production, many miners are having to dig deeper or go into more remote locations, such as mining within the Arctic Circle or the seabed mining that is currently planned in Papua New Guinea – these are difficult and new environments.”
Bassan uses the example of the mining collapse in Chile as a terrible result of the risks associated with deep, underground mining. “Mining deeper underground is more difficult, expensive and a lot more dangerous,” he says.
This brings new challenges relating to logistical and supply chain issues, and Hodgins says products such as SAP Transportation Management can help businesses to better manage and reduce costs associated with the supply chain.
Managing regulation
Mining in Australia has always been heavily regulated, with health and safety always being a very strong focus for the industry. While Hodgins says he is not seeing a significant increase in the regulatory issues impacting the sector, there is more pressure on miners to measure carbon emissions in the wake of the introduction of the carbon tax.
“There is an increase buts its not dramatic compared to what’s it has been over the last five to 10 years,” he says. “Companies are starting to focus on carbon emissions more and more now that they’re anticipating a trading scheme coming in.”
Richard Lissett, National Practice Manager – SAP solutions, ASG Group, says that his team expected more of a demand from organisations looking to track their carbon emissions.
“We’ve probably not seen as big an uptake as we would have expected, based on the government pressures and media noises which was made,” he says. “The rich functionality in SAP ERP and SAP Business Objects provides capabilities for tracking the current emissions requirements while having the capacity to adapt for future changes, we have not seen companies take great advantage of SAP for their emissions management and reporting requirements.”
And although other countries do not necessarily have the tight regulatory framework of Australia, according to Bassan, companies are always under the pump with the challenge to maintain their licence to operate, no matter what part of the world they are in.
“Even when operating in parts of the world with less strict compliance requirements, the parent companies are still answerable to their shareholders in the developed world and the supplier networks are so complex that they often end up using companies from all around the world. You have to apply global best practice no matter where you’re mining,” he says.
Project trends
Pressure to contain operating costs and increase productivity and efficiency are being noticed across the sector. Bassan says technology is increasingly being used by miners to address these challenges and gain a competitive advantage.
“This is about essentially being able to produce more tonnes with the same number of mines and the same number of mining machines,” he says. “Increasingly we’re seeing a recognition that technology has the capability to achieve more tonnes from the mine without additional investment in capital infrastructure. Less steel, more investment in silicon.”
Court has also seen an investment in technology across all projects and types of operations.
“Decisions are being made around technology investments, especially regarding autonomy and operational centres, with ongoing investments across commodities to understand how and where this would be effective, as well as how the technology could be scaled for longer term benefit,” he says.
Major mining capital projects are getting more intensive reviews, and the justifications must be concrete and prioritised, according to Court.
“There are a lot of capital projects constructing new mines underway. They are based on long-term plans and are continuing despite some reduction in commodity prices over the last year,” Bassan says. “The underlying reasons for doing those projects have not changed.”
Meanwhile, the biggest project trend Parvin is seeing at the moment is in the ERP space.
“The trend I’m seeing is SME’s looking to upgrade their enterprise systems, particularly ERP enterprise systems and obviously SAP is front and centre for that,” he says.
Mobility
Along with cloud and big data, mobility is one of the top three predicted technology trends of the future, and given its often remote operations and challenging environments, it is no surprise that the mining industry is utilising its benefits.
“Mobility is one of the key enablers of digital mining. We are seeing strong demand for maintenance, procurement, inventory, production and health and safety mobility solutions from companies that want to not only control their costs through streamlined processes but also attract a younger generation to the industry to replace an aging workforce,” Easlea says.
However, using a mobile device on a mining site isn’t as simple as incorporating it into an office environment. Mobility has always been a challenge in the mining sector because the geographical areas are relatively constrained, Parvin says.
“The mine might be in a very remote area so mobile solutions have some benefits in certain aspects, but often the business case is quite difficult because it’s a very harsh environment, so there needs to be a fairly significant investment in hardware and infrastructure.”
Despite this, he says there is no doubt a focus on mobility will continue to grow, especially for field service crews using it for maintenance purposes.
“They will benefit from optimised routing, access to back end systems and data,” Parvin says.
“Mobility is a dimension where we have seen interest, but not at scale,” says Court. “There has been more focus on analytics and how broader technology plays in an operational domain. Some organisations are assessing how the mobility aspects play into the process improvement and benefit delivery across client sites.”
There has been a small number of field trials that have run in various parts of the world, including projects run by the CSIRO in Australia that have looked at the use of mobile technology on mine sites in the last couple of years.
Clearly, a different range of mobile devices from the typical iPads and iPhones need to be applied to the harsh mining environments, says Bassan. As well as providing critical voice communications, today’s digital two-way radio handsets have colour screens, GPS and can be connected to corporate apps running on the enterprise network.
“We’re also seeing specialised hardened devices, ruggedized tablets and handheld smart phones that can be used even in underground environments,” Bassan says. “They’re not quite as user friendly as an iPhone, but they can provide some basic workflows and functionality, and link the mobile field worker to live data and business process.
SAP has supported its mobility strategy with the acquisition of Syclo and Sybase, which are able to provide infrastructure to manage mobile devices and also specific mobile applications for functions such as maintenance and procurement, which are critical in the resources sector.
Hodgins says being able to access apps such as these increase the amount of time maintenance or operational staff can be out in the field rather than doing admin in the office, making business processes more efficient.
“The other advantage of this is the better quality of data that is entered in the systems, because they’re not double or triple handling information, writing down things on bits of paper and coming in trying to remember what they did,” he says. “That accentuates the value of the ERP system in particular, where you’ve got better quality information and the company can make better decisions on how they’re performing.”
This article was originally published in Inside SAP Summer edition 2012.
